This article explains how VAT applies to expense report rebilling by your freelancers.
- The rebilled amount is incl. VAT if the freelancer benefits from VAT exemption, excl. VAT if they are VAT-registered.
- Professional expense rebilling follows the same tax regime as fees.
- As a VAT-registered client, you can in principle recover VAT charged on expenses.
What expense amount is rebilled: excl. or incl. VAT?
In most cases, the freelancer will rebill expenses rather than reimburse disbursements. These are professional expenses incurred in their name to carry out the mission.
The amount used for this rebilling, excluding tax (excl. VAT) versus including all taxes (incl. VAT), depends on several factors, starting with whether the freelancer is subject to VAT.
- VAT exemption: the freelancer cannot recover VAT on their expenses; rebilling is therefore for the incl. VAT amount.
- VAT-registered: if the rules of the country of practice allow VAT recovery on expenses, rebilling is for the excl. VAT amount.
Why is expense rebilling subject to VAT?
Professional expense rebilling follows the same tax regime as mission fees. Therefore, if fees are subject to VAT, rebilling will also be subject to VAT at the same rate as those fees (regardless of the VAT rate applicable to the expense).
For example, a catering expense that incurred VAT at 10% (e.g. £100 excl. VAT + £10 VAT), where deduction is not allowed at freelancer level, will be rebilled for its incl. VAT amount (£110) and will then be subject to VAT at the same rate as fees (e.g. 20% VAT, i.e. £110 + £22 VAT = £132 incl. VAT).
Rebilling expenses for their incl. VAT amount with additional VAT (mission VAT) should have no impact for the client, as you can in principle recover the VAT charged (in our example: £22 VAT).
Rebilling puts you in the same position as the freelancer: you record a charge equal to the freelancer's expense for its incl. VAT amount (in our example: a £110 charge).